Aviva has called on rival insurers to follow its example and hand back cash to the estate of policyholders who die up to three months after taking an annuity.
The insurance giant is improving its annuity offering by introducing 'annuity value protection' and 'default one year guarantees' as standard for all customers.
Annuity value protection is a promise that if a customer dies within 90 days of starting their annuity, Aviva will return the original pension fund to their estate, minus any payments already taken. And should the customer pass away after 90 days of taking out the annuity, but within a year of it, then Aviva will continue to make annuity payments to their estate for the remainder of that year through its default one year guarantee.
Safeguard: Your estate will not suffer as big a blow should you die within a year of taking out an annuity under new customer protection introduced by Aviva.With the majority of the pension pot left behind when a customer die early into their retirement, annuity providers make big money in such circumstances, but Aviva is the only annuity provider to offer any such payment back after 90 days, which it has extended from its previous 30 day policy.
Clive Bolton, managing director of Aviva's At Retirement business, said: 'Aviva is committed to leading by example and we believe everyone - retirement providers, government, regulators, advisers and individuals alike - should take responsibility to act on these ideas and help to provide financial security and peace of mind for current and future retirees.
More... Get an annuity quote Tiny ray of light as annuity rates creep up thanks to rising gilt yields Annuity shake-up could increase your retirement income by 20 per cent'Evidence of our commitment to customers is the launch of our annuity value protection and default one year guarantee.
'Not only will this ensure that everyone sees at least some benefit from their annuity but it will also seek to reassure customers and increase their confidence in these products.'
These changes have been applied as the bare minimum on a basic Aviva annuity, and would of course be superseded if someone takes out a longer guarantee period, or makes arrangements so that their annuity income goes to their spouse through for example a joint life annuity.
In the event the pension fund is paid back if a customer dies within 90 days, because it is at the discretion of the annuity provider as to who receives the money (typically the next of kin), then it is generally held outside of the estate for inheritance tax purposes.
This could be paid out as a tax-free lump sum to the beneficiary, but ultimately the tax liabilities will differ depending on individual circumstances.
Aviva has set out four new initiatives in its Rethinking Retirement Report which it thinks will make the industry fit for purpose and more user-friendly. These are:
Increased customer protection - such as the enhanced annuity guarantees mentioned above. It is also calling on the industry to present annuity rates in a way that customers can easily compare their options.Automatic personal underwritten annuities. Aviva says individually underwritten quotes for all policy will cut down on confusion caused by terms such as 'standard', 'enhanced' and 'lifestyled' annuities, and see products more tailored to a customer's needs.Ensuring non-advised annuity sales have the same transparency of costs as advised sales, giving customers a clear menu of their services and associated costs across all its annuity sales.A call to the Government to define which department should take responsibility for equity release, rather than it being split between four as it is currently.Another initiative that Aviva is supporting is the Pensions Income Choice Association's plans for an online annuity directory which directs people to specialist advisers who can meet their specific needs, with Aviva saying it should be rolled out to include all retirement products.
ANNUITY RATES Low interest rates affect your income. Check our best buy tables now. moreThe Equity Release Council welcomed the plan to make one department responsible for the products.
Nigel Waterson, chairman of the council, said: 'We are delighted that Aviva has chosen to endorse the council's call for the Government to define departmental ownership of equity release as part of its report.
'This common sense move is vital to help consumers make the best use of all their assets in retirement and would be a great step forward.
'This type of official state recognition would go a long way to dispelling the myths that continue to dog the industry and help older consumers to feel more comfortable accessing the value in their homes.'